Anthem (ANTM) Offers $184/Share for Cigna Corp. (CI)

Anthem, Inc. (NYSE: ANTM) announced that it has submitted a non-binding proposal to acquire Cigna Corporation (NYSE: CI) for $184 per share in cash and stock. The proposed combination would create a premiere health benefits company with critical diversification and scale to lead the transformation of health care delivery for consumers. The combined company would be an industry leader with greater than $115 billion in annual revenues, based on the most recent 2015 outlook publicly reported by both companies. Together Anthem and Cigna would gain meaningful diversification covering approximately 53 million combined medical members and strong commercial, government, consumer and specialty franchises.

Under the terms of the proposal, which was delivered to Cigna’s Board of Directors, Cigna stockholders would receive a total consideration that represents a value of $184 per share. The offer, which values the company at $53.8 billion on an enterprise basis, represents an “unaffected” premium to Cigna’s stockholders of more than 35.4%, based on the closing price of Cigna’s shares on May 28, 2015. Under the contemplated terms, the consideration would consist of approximately 31.4% Anthem shares and 68.6% cash and the combined company would reflect a pro forma equity ownership comprised of approximately 76.3% Anthem shareholders and approximately 23.7% Cigna stockholders. Anthem is also confident in its ability to complete any financing related to the acquisition.

Anthem expects the combination would be accretive to operating earnings per share and that the combined enterprise would generate significant annual cost synergies by achieving operating and G&A efficiencies. Anthem expects to achieve adjusted earnings per share accretion of greater than 10% in year one, with the accretion more than doubling by year two following the closing of the transaction. Anthem is confident in the achievability of synergies and is committed to retaining investment grade debt ratings.

Anthem is confident in its ability to obtain regulatory approvals. In the course of previous negotiations, both companies have expressed a confidence that regulatory approval would not delay the consummation of the combination. This includes matters related to the Blue Cross Blue Shield Association.

“This combination is the absolute best strategy for both organizations to maximize the potential and lead the transformation of the health care industry. Together our companies would rapidly build on each other’s complementary strengths to create a diversified platform that could better capitalize on new opportunities and meaningfully deliver innovative, quality solutions to all of our stakeholders,” said Joseph Swedish, president and chief executive officer of Anthem.

“In recent discussions with Cigna, we have both recognized the compelling strategic and financial benefits of this combination. Not only would Cigna shareholders benefit from the significant up front premium, they would have the compelling opportunity to participate in the upside potential of the combined company that would boast a broad, diversified portfolio able to seize on opportunities across the health care industry. The Anthem Board of Directors and management team are highly committed to pursuing this exciting opportunity, and stand ready to finalize due diligence and negotiations on a definitive agreement. We are disappointed that Cigna’s insistence on uncommon governance demands has impeded the realization of this combination for shareholders and all stakeholders. With the cooperation of Cigna management and Board of Directors, we expect that we could reach a mutually agreeable and negotiated transaction by the end of June 2015.”

Utilizing Anthem’s and Cigna’s complementary strengths, the combined company would have an enhanced ability to lead the change in healthcare delivery as a trusted partner for consumers. This includes Anthem’s long-standing Blue Cross and Blue Shield brand in 14 states, and Medicaid footprint via its Amerigroup brand in 19 states; Anthem’s robust health insurance exchange membership across our states and Anthem’s best-in-class Medicaid business and commercial expertise. Cigna would bring its leadership position, broad geographic reach and national account presence as well as its expertise in many important facets of the commercial market. Together the combined company would offer a comprehensive range of products and services to the full spectrum of health benefits customers – individuals, employers and state and Federal governments. With an industry leading platform, the combined company would be better able to take advantage of the growth opportunities across the commercial and government marketplaces.

Anthem has been engaged with Cigna to explore a potential combination since August 2014 and is making its proposal public today following Cigna’s refusal to reasonably negotiate and its insistence on securing governance matters that are not common practice in similar transactions. Anthem is confident in the value being offered, the growth potential of the combined company and its ability to successfully integrate the two organizations.

UBS Investment Bank is acting as advisor to Anthem and White & Case LLP is acting as legal counsel to Anthem in connection with the proposed transaction.

The full text of the letter delivered to Cigna by Anthem on June 20, 2015 is included below.

June 20, 2015

Board of Directors of Cigna Corporation900 Cottage Grove RoadBloomfield, Connecticut 06002Attention: Isaiah Harris, Jr., Chairman

Dear Members of the Board,

As you know, our respective companies have been engaged in a sustained and ongoing dialogue and analysis about a potential business combination. It is our belief that a combination of Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”) would be an excellent fit, both strategically and culturally. As I have discussed with Cigna’s President and Chief Executive Officer, David Cordani, over the past several months, the synergy opportunities and enhanced growth potential of a combined Anthem-Cigna create a compelling value proposition for our respective investors, and I know from those conversations that you share that view as well.

We are pleased to be following up on our June 18 letter with an affirmation of our belief in the benefits of the combination of our two companies much as Mr. Cordani expressed to me in his June 18 letter. The value that would result from the combination of our companies is substantial. Over the course of our discussions and meetings, we have concurred on many topics, especially the compelling strategic fit between our companies. Together, our unique and complementary strengths drive value, create the leading health services company across multiple markets, and as Mr. Cordani indicated on Thursday, will “[provide] the broadest suite of health engagement, benefits and specialty solutions for employers of all sizes, combined with significant capabilities in the growing Seniors, Medicaid, International and Individual Markets.” Our scale and capabilities will lower our customers’ costs while connecting consumers via our leading brands.

During the past few weeks, I have had several phone calls with Mr. Cordani and Anthem has submitted to Cigna four written proposals to combine our companies. As you are aware, those proposals were submitted on June 3, June 10, June 16 and June 18 and, responsive to your desire to maximize value creation for your stockholders, offered Cigna stockholders consideration of $174 per share, $178 per share, $178 per share and $184 per share, respectively. Having considered the points Mr. Cordani made on June 18 and in his letter of June 19 and echoing our June 18 letter, we believe that we are making an exceptionally attractive proposal. Mr. Cordani asked for a value in the $180's per share - we are offering $184 per share. Our revised offer now represents a premium to Cigna’s stockholders of 35.4% based on the unaffected closing price of Cigna’s shares on Thursday, May 28, 2015.

Throughout the course of our discussions, Mr. Cordani stressed that certain governance issues were very important to you. Up until our June 18 proposal, we were prepared to offer Mr. Cordani the positions of President and Chief Operating Officer in the combined company and Co-Chairman with me of the integration team, as well as provide Cigna an 8-6 Board split of legacy Anthem and Cigna directors in the combined company (with Mr. Cordani serving as one of the Cigna-designated directors), concessions that did not comport with precedent transactions that provide stockholders a premium of the size we had offered. We were also prepared to entertain Cigna’s requested supermajority Board approval protections with respect to certain specified matters for a period of two years following the closing of the transaction. Unfortunately, despite the compelling aspects of these proposals, you continued to insist that Mr. Cordani be immediately appointed CEO of the combined company or that we reach an acceptable position for his specific roles and responsibilities as well as the timing for a transition to CEO, that there be an almost equal Board split of directors in the combined company and that certain changes related to senior leadership changes, decisions to not re-nominate or to remove directors and changes in Board size be subject to the supermajority approval of such Board for a period of 2-3 years, positions which were confirmed in the letter that Cigna submitted to Anthem on June 18 and my subsequent discussion with Mr. Cordani that evening. As you know, Anthem has been unable to reconcile the substantial premium being offered to your stockholders with these governance demands.

In response to our June 18 proposal we received a letter from Mr. Cordani on June 19 stating an appreciation for the $184 per share offer price, requesting a 50% cash and 50% stock mix of consideration (versus the 68.6% cash and 31.4% stock mix offered in our June 18 proposal), proposing that I would serve as CEO for 12 months following closing and Chairman for 24 months following closing and that Mr. Cordani and I would jointly serve as co-chairs of the integration committee for 24 months following closing. In response to your June 19 letter Anthem communicated that it would be prepared to proceed with a transaction at $180 per share, with a mix of consideration consisting of 60% cash and 40% stock, an 8-6 Board split of legacy Anthem and Cigna directors in the combined company with supermajority Board approval protections and that I would serve as CEO and Mr. Cordani would serve as President and Chief Operating Officer, each for 24 months following closing. In addition, I would serve as Chairman of the Board and, for 24 months following the closing, Mr. Cordani, and I would jointly serve as co-chairs of the integration committee. We also communicated that upon my stepping down as CEO after this 24 month period, there would be no guarantee of CEO succession, the future CEO would be chosen by the Board at that time and that I could potentially continue as Chairman. Finally, we stated that in order to proceed on this basis, we needed a mutual 2 week exclusivity period to be agreed upon by 3:00 PM EDT today. In response to your request that we confirm our position that we would not be willing to guarantee Mr. Cordani the CEO role after 24 months, our advisors explained to your advisors yesterday evening that the Anthem Board has unequivocally determined it cannot guarantee who will lead the company 2 years from closing. Our position is clear – if Mr. Cordani is not named CEO by the combined Board after this 2 year period, he would have the right to terminate his employment and be paid a severance amount to be negotiated. Your financial advisor responded by stating our position on CEO succession would lead you to be unable to respond to our proposal or honor today’s 3:00PM EDT deadline and your legal advisor told our legal advisor that you would not agree to our requested 2 week exclusivity period.

We were stunned that the Cigna Board continues to insist on a guaranteed CEO position for Mr. Cordani over choosing to allow its stockholders to realize the significant premium being offered. We therefore are now reaffirming our June 18 proposal for a combination of our companies (the “Proposal”), which we believe your stockholders will find more compelling.

This transaction is a strategic priority for us and has the full attention and support of the Board of Directors and senior management team at Anthem. We are determined to move quickly and decisively to complete this transaction.

The significant components of our Proposal are as follows:

Price / Consideration

We have proposed to combine our companies in a merger transaction in which Cigna stockholders would receive a value of $184 per share, representing a premium to Cigna’s stockholders of 35.4% based on Cigna’s unaffected closing price on May 28, 2015. The consideration would consist of approximately 31.4% Anthem shares and 68.6% cash and the combined company would reflect a pro forma equity ownership comprised of approximately 76.3% Anthem shareholders and 23.7% Cigna stockholders. This proposal is a meaningful increase in value and cash consideration mix relative to our prior proposals on June 10 and June 16.

This is a highly compelling opportunity for your stockholders and presents them with an immediate monetization of a portion of their investment in Cigna, along with a meaningful participation in the attractive growth potential and synergies of the combined company. We are confident that your stockholders will be supportive of our Proposal. We note that there is greater than 70% overlap between Cigna stockholders and Anthem shareholders. We also note that many financial analysts already recognize the compelling logic of such a combination and have concluded that a transaction between Anthem and Cigna provides the greatest upside among the likely candidates for consolidation in our industry.

We believe there are substantial and achievable synergy opportunities, including operating efficiencies, as we leverage our respective core competencies as well as PBM savings from our combined scale.

Financing

We have the resources available to finance this transaction. The cash portion of the consideration will be financed through available cash on hand together with external debt financing. We have been in discussions with our lenders regarding potential financing and we are very confident in our ability to finance the proposed transaction. Based on our proposed consideration mix and our strong track record, we believe that the combined company will maintain an investment grade rating. In this regard, we have assumed a pro forma debt to capitalization ratio of approximately 50% at closing of the transaction. We will have fully committed financing prior to signing of the transaction, and the transaction will not be subject to a financing condition.

Governance

In light of the magnitude of the premium now being offered to your stockholders in this Proposal, we no longer believe that our prior governance concessions are appropriate. We believe we are now making a very attractive governance proposal by affording a significant number of board seats in conjunction with a very significant premium. In particular, we are offering a board split of 10 directors from Anthem and 3 from Cigna which is consistent with precedent transactions. I will continue to serve as President and Chief Executive Officer of the combined company and also will serve as its Chairman of the Board. We are also prepared to entertain your requested supermajority Board approval protections with respect to certain specified matters for a period of two years following the closing of a combination. Although I will employ a collaborative approach in order to achieve a successful integration of our companies, I will lead the integration team.

As you know, earlier this year our respective companies had detailed discussions regarding possible concerns related to the potential impacts a combination could have on Anthem’s license agreements with the BCBSA, its related requirements, our overall relationship with the BCBSA and other Blues and the pending BCBS antitrust litigation. As I have discussed with Mr. Cordani, my Board, my senior management team and our advisors have given considerable additional thought and analysis to such potential impacts and we have resoundingly concluded that any such impacts should not act as any impediment to the combination of Anthem and Cigna. This conclusion is what led me to call Mr. Cordani on May 21, 2015 to recommence our discussions. In the months that we and our advisors have worked together to discuss and analyze these potential impacts, we were very pleased that you shared our ultimate view and acknowledged and agreed that such potential impacts should not delay the consummation of a proposed merger transaction nor have a material economic impact on the combined company. Importantly, there will not be any closing conditions relating to the BCBSA and, as you know, there is a two year period post-closing to resolve any compliance issues and numerous ways in which to do so.

We have also given careful consideration to the regulatory approvals that the proposed transaction would require. As noted in our June 3 letter, based on the analyses of our respective antitrust counsel and information shared to date, we believe there is a consensus of where there is overlap between our companies and that no material substantive antitrust or insurance regulatory issues are present. Consummation of our combination would be subject to customary terms and conditions for a transaction of this type, including necessary shareholder and regulatory approvals.

Anthem continues to firmly believe that a negotiated transaction is in the best interests of our respective investors, and my Board, senior management team and our advisors remain ready to immediately engage in productive discussions regarding Anthem’s proposal to acquire all of Cigna’s outstanding stock at a significant premium and we are fully prepared to immediately recommence our due diligence, negotiate mutually acceptable definitive agreements and finalize a transaction to combine our companies on an extremely expedited basis.

No legal obligations would, as you know, be created on either of our parts until a definitive merger agreement is signed.

Again, we believe that your stockholders would choose to agree to our proposed governance structure rather than forfeit the substantial premium and other significant benefits that we can offer them in a combination of our companies. Therefore, to ensure that your stockholders are apprised of the extraordinary value afforded by an Anthem-Cigna combination, we are publicly releasing the text of this letter.

My Board and I remain highly committed to this exciting opportunity and would welcome the opportunity to meet with you at the earliest possible time. We sincerely hope that you will come to share our enthusiasm and recognize the extraordinary value that our Proposal provides for your stockholders. I look forward to a prompt and favorable reply.

Very truly yours,

/s/ Joseph R. Swedish

Joseph R. Swedish

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